Inflation is defined as a rise in the general level of prices. When inflation occurs, the buying power of the dollar would
A. Increase
B. Decrease*
C.Remain stable
D.not be affected by inflation
Correct
yes
The correct answer is B. Decrease.
Inflation refers to a situation where the general level of prices of goods and services in an economy increases over a certain period of time. When inflation occurs, the value of money decreases, which means that the buying power of the dollar decreases.
To understand why the buying power of the dollar decreases during inflation, it's important to understand the relationship between prices and the value of money. In a stable economy with no inflation, the supply and demand for goods and services are generally balanced. When prices rise during inflation, it means that the demand for goods and services exceeds the supply, leading to an increase in prices.
As prices increase, the value of the dollar decreases because it can purchase fewer goods and services than before. This decrease in the buying power of the dollar means that you would need more dollars to buy the same amount of goods and services as you did before the inflation.
Therefore, during inflation, the buying power of the dollar would decrease.